Banks Deteriorate as Loan Losses Mount

The FDIC reported that banks are losing more money on loans and, as a result, have reduced lending.

WASHINGTON ( TheStreet) -- The Federal Deposit Insurance Corp.'s "problem list" of troubled banks and thrifts swelled to 702 at the end of 2009, almost triple that of a year earlier, while the pace of bank failures accelerated. Loan losses mounted, and lending languished.

The FDIC said the banking industry broke even during the fourth quarter, with $914 million in net income compared with a loss of $37.8 billion a year earlier. Most of the improvement was concentrated among the largest banks. Of the four peer groups covered in the FDIC's report released Tuesday, only banks and thrifts with assets exceeding $10 billion had a positive return on assets for the quarter.

Earnings were helped by a turnaround in trading revenue, which totaled $2.8 billion for the fourth quarter versus a loss of $9.2 billion. Servicing income also rebounded, to $8 billion, from a loss of $390 million.

Still, an improvement in net interest margins was halted during the fourth quarter. The industry's margin (the difference between the average rate earned on loans and investments, and the average cost of funds) was 3.49%, up from 3.33% a year earlier but down from 3.51% in the third quarter.

Industry net income for all of 2009 was "well below historical norms" at $12.5 billion, a fraction of the $100 billion in 2007. In 2008, net income was $4.5 billion.